FIN 515 Managerial Finance – DeVry Version 1 (TCO D) A stock just paid a dividend of D0 = $1.50. The required rate of return is Rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? (Points : 10) (TCO D) If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stocks expected dividend yield for the coming year? (Points : 10) (TCO D) Rebello’s preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return? (Points : 10) (TCO E) Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? (Points : 10) (TCO E) Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division As cost of capital is 10.0%, Division Bs cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division As projects are equally risky, as are all of Division B’s projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? (Points : 10) (TCO D) Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach? (Points : 10) (TCO F) Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected. (TCO F) Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project’s IRR? Note that a project’s IRR can be less than the WACC (and even negative), in which case it will be rejected. (TCO F) Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? (TCO H) Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a three-year tax life, would be depreciated by the straight-line method over its three-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the projects three-year life. What is the projects NPV? Version 1 (TCO D) A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors’ required rate of return is 11.4%, what is the stock price? (TCO D) If D 0 = $2.25, g (which is constant) = 3.5%, and P 0 = $50, what is the stocks expected dividend yield for the coming year? (TCO D) Carter’s preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return? (TCO E) Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? (TCO E) If a typical U.S. company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely (TCO D) Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D 1 = $0.67; P 0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained…….? (TCO F) Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project’s NPV? Note that a project’s expected NPV can be negative, in which case it will be rejected. (TCO F) Simkins Renovations Inc. is considering a project that h…
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